Tullis Construction enters into a long-term fixed price contract to build an office tower for $10,100,000. In the first year of the contract Tullis incurs $2,900,000 of cost and the engineers determined that the remaining costs to complete the project are $5,100,000. Tullis billed $3,600,000 in year 1 and collected $3,500,000 by the end of the year. How much gross profit should Tullis recognize in Year 1 assuming the use of the percentage-of-completion method? (Round any intermediary percentages to the nearest hundredth percent, and round your final answer to the nearest dollar.)
A) $0
B) $761,250
C) $3,661,250
D) $6,561,250

Question

Quizplus · Accepted Answer

The percentage of completion is calculated as $2,900,000 / ($2,900,000 + $5,100,000) = 36.25%. The total expected gross profit is $10,100,000 - ($2,900,000 + $5,100,000) = $2,100,000. Therefore, the gross profit recognized in Year 1 is 36.25% of $2,100,000, which is $761,250.

Tullis Construction Enters into a Long-Term Fixed Price Contract to Build